The Limited Builder Duty to an Owners Corporation

By Peter Micevski, Lovegrove & Cotton.

October 2014

In a recent High Court decision handed down last week (Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288[2014] HCA 36), the High Court overturned a decision of the NSW Court of Appeal which found that a builder owed a duty to exercise reasonable care and skill in the construction of a non-residential building to avoid causing the owner and subsequent owner to suffer pure economic loss resulting from latentdefects.

As you may recall from my previous article ‘Alarm Bells for Builders: A duty of care owed in respect of commercial buildings in NSW and potentially Australia’, this case concerned the construction of a mixed-use retail, restaurant, residential and serviced apartment complex, where the Owners Corporation brought proceedings against the Builder and Developer to recover loss and damage, namely the cost to rectify latent defects in the common property.

The principal questions considered by the High Court were:

Whether the Builder owed a duty of care to the Owners Corporation which was independent to the duty of care it owed to the Developer?

Whether the Builder owed a duty of care to the Developer and by extension to the Owners Corporation?

The High Court unanimously, by four separate judgments, found that there was no duty of care in negligence owed by the Builder to the Developer and to original purchasers, and therefore there could be no duty of care to the Owners Corporation or subsequent purchasers.

The High Court found that for a duty of care to be imposed in these circumstances, there must be a requisite degree of ‘vulnerability’, which required an inability of the Owners Corporation to protect itself or its interests from the kind of harm suffered.

Whilst the High Court acknowledged that the Owners Corporation were relying on the Builder to undertake its works properly and that the Owners Corporation did not have an opportunity to check the quality of the Builder’s work, this did not of itself constitute ‘vulnerability’.

The High Court highlighted the contracts between the Builder and the Developer, and also the Developer and original purchasers. Those contracts set out extensive rights for any defective works to be rectified.

This case represents a significant “win” for Builders and Developers in the construction of apartment complexes and multi-purpose high rises. Builders can now be more relaxed about the risk of litigation being brought against them for latent defects. It is of course, not such a favourable result for owners of such premises.

We note that this present case concerned part of a building that was specifically designed and constructed to be only serviced apartments that were intended to be rented out for commercial gain. Therefore the Owners never enjoyed the benefit of the statutory warranties under the domestic statutory regimes. This is an important qualification and highlights the less stringent protection afforded to owners of commercial premises.

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